Outsourcing Or Automation: No Difference To Unemployed Workers

Some 750,000 U.S. tech and business workers are going to get the pink slip between now and 2016. Does it really matter if their jobs go offshore or are replaced by machines?

A new study claims that many U.S. tech and services jobs that have been lost to offshoring in recent years would have fallen victim to automation anyway.

The paradox is that, while offshore outsourcing remains controversial, few would argue with a company's right to leverage technological automation for cost savings and competitive advantage. And given that a job lost is a job lost, and that many offshoring opponents are programmers who have put others out of work by computerizing business functions, are outsourcing foes just being hypocritical?

According to the Hackett Group, 750,000 more jobs in IT, finance, and other business services will go offshore by 2016, at which point outsourcing to low-cost destinations like India and China will slow significantly for two reasons. One is that, by then, most of what can be offshored will already have been. The other is that many of the functions that are currently being shipped overseas will have become automated in the next four years.

The study has a couple of key implications. The most significant is that the "jobless recovery" may be structural and thus permanent, and that no amount of anti-outsourcing legislation, such as a bill introduced last month by Long Island Democratic congressman Tim Bishop, will change that. To quote Bruce Springsteen, "These jobs are going boys, and they ain't coming back."

The second is that the tech boom that is fueling much of the growth in the developing world, in places such as South and East Asia and South America, may be relatively short lived. While outsourcers are making big bucks off providing low-cost workers for routine tech work, much of that work may dry up as productivity gains achieved through automation take hold. "A decade from now, the landscape will look fundamentally different, as demand by Western companies for traditional offshore capacity will have largely dried up," the Hackett Group contends.

The researchers point to transaction processing as a function in which many, previously discrete steps have been consolidated, often through software, into just one or two. Other commonly offshored functions that are ripe for automation include network monitoring, testing, and many aspects of the software development process.

A number of offshore outsourcers already sense this and are taking proactive steps to move beyond the body-shop model. They're also setting up offices in the United States to attract a higher level of work. Bangalore-based MindTree this week, for instance, announced that it is opening a facility in Gainesville, Fla., from which it will provide advanced engineering services to American customers. It expects to employ 400 U.S. workers.

So all this begs the question. How is a job lost to automation any different from a job lost to offshoring? If you're the one getting the pink slip, do you care if your replacement is a worker in Bangalore or a server and software residing in a data center in North Dallas? Does automation produce any larger economic benefits that are not gained through offshoring?

Proponents of offshoring say the practice frees up cash and domestic talent, which can be put to work on projects of greater strategic value. Opponents say businesses are merely lining executives' pockets with the money saved. But both arguments could potentially apply to automation, as well--it just depends on how the resources are used.

But it's doubtful that you'll see legislators introduce bills that would prohibit companies from using, say, automated testing tools. Any such lawmaker would immediately be dismissed as a Luddite. It's also unlikely you'll hear anti-automation protests from organizations like the Programmers' Guild. That would be like a milliner saying people shouldn't wear hats. Yet, if you believe the Hackett Group's numbers, automation is eventually going to result in just as many job losses in the West as offshoring.

So why do some groups believe U.S. companies have a moral or nationalistic obligation to keep American workers employed, except in those cases where that worker can be replaced with a machine? Any thoughts?

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As long as Capitalism stays Automation and Outsourcing stays.At the end of the day business in capitalism has to deliver that can be by producing more goods at rapid pace before demand goes away or reducing cost by outsoucing

often the same people that are so adamant that capitalism , with its extreme waste and fast pace that leave ruin and unemployment in thier wake , is the only economy for them will often bitch about unemployment in the same conversation . this is what we thought we wanted and what we think we want isn't always what we get . its true that if many companies were to not out source they might themselves a dead company in no time because those that do outsource can spend more money on advertisement , building more stores or improving their image . other companies could try and perserve jobs and be patriotic but it will ultimately be their down fall which will eliminate the jobs shortly after they are made which means that the people that thought their future was secure will find themselves with newer more expensive bills than those that they had before . we can bitch about all of this all we want . we can try and make bills that will temporarily create more work until technology once again renders the human competition obsolete , we can fight the good fight against greed and competition but resistance is futile . ultimately technology will rule a world full of poverty . at that point there will be no one to buy products . competition will grow stagnant . money will be useless and we will all be ruled by a machine and there are those that would say that they can only hope that there will at least still be a person pressing buttons and that the machine wont just be on auto pilot . there will be others that wont be so sure . they will look at the human track record of irresponsibility and they will wonder if a human is ready for that kind of power . i find myself unsure of which i am . its ironic that the machine that is competitive progress which exists to advance civilisation , as much as it exists to put some ahead of others in a race for power , will ultimately send most of society to the dark ages .

often the same people that are so adamant that capitalism , with its extreme waste and fast pace that leave ruin and unemployment in thier wake , is the only economy for them will often bitch about unemployment in the same conversation . this is what we thought we wanted and what we think we want isn't always what we get . its true that if many companies were to not out source they might themselves a dead company in no time because those that do outsource can spend more money on advertisement , building more stores or improving their image . other companies could try and perserve jobs and be patriotic but it will ultimately be their down fall which will eliminate the jobs shortly after they are made which means that the people that thought their future was secure will find themselves with newer more expensive bills than those that they had before . we can bitch about all of this all we want . we can try and make bills that will temporarily create more work until technology once again renders the human competition obsolete , we can fight the good fight against greed and competition but resistance is futile . ultimately technology will rule a world full of poverty . at that point there will be no one to buy products . competition will grow stagnant . money will be useless and we will all be ruled by a machine and there are those that would say that they can only hope that there will at least still be a person pressing buttons and that the machine wont just be on auto pilot . there will be others that wont be so sure . they will look at the human track record of irresponsibility and they will wonder if a human is ready for that kind of power . i find myself unsure of which i am . its ironic that the machine that is competitive progress which exists to advance civilisation , as much as it exists to put some ahead of others in a race for power , could ultimately send most of society to the dark ages .

There is a distinct difference. Although it may be a trivial matter after you've lost your job as to why (offshoring vs automation) there are things we can do to prevent offshoring or at least to level the playing field.

As to automation, I think we need to embrace change and let the cards fall where they may. But with offshoring, this is a trend caused partially by unfair and unbalanced trade agreements, currency manipulation, and guest worker programs originally designed to fill shortages now enabling offshoring.

So the difference is that we have one outcome that we probably can't control, and even if we could control it we probably shouldn't. Let's not stand in the way of automation.

But there are very tangible things we can do to control offshoring or at least to make sure that the reasons to offshore aren't based primarily because of imbalance or unfair behavior. Let's give ourselves a chance to compete fairly for these jobs. Here is how:

1) Implement a balanced trade policy on trade in services. Under GATTS we are permitted to tariff services. I suggest that we have "free trade" where-ever we have balanced trade - meaning no tariff. I suggest that we tariff services at a rate matching the deficit which would be automatically adjusted each quarter. A 5% deficit would result in a 5% tariff. Let's call any deficit below 5% "balanced" and have no tariff. The reason why we have a deficit does not matter so that solution will automatically correct currency manipulation, labor exploitation, and all the other sins of society. We don't need to sign complex trade deals - we simply implement this trade law and countries who want access to our market will adjust their policies accordingly. Balance will be restored one way or another.

2) Do not allow firms engaged primarily in offshoring in our nation to sponsor temporary guest workers. If they want access to our economy let's tell them what we told Japanese and Korean auto manufacturers: hire our people.

Automation is a good thing for many reasons. In short automation helps the company improve processes in order to achieve consistent results while also achieving operational efficiency gains. This is a natural course of a company's evolution. Sure workers can be adversely affected by automation choices, when a company decides to automate it takes time to put such into place. This is where the worker is at least given a wake up call to either change positions, improve their skill sets or seek employment elsewhere.

By contrast, when you talk about outsourcing, this is a management decision based primarily on greed over need. When outsourcing first became all the rage in the 1980's, companies were able to mimic services provided by CSR's and IT programmers for pennies on the dollar when compared to their American counterparts. The outsourcing linchpins were countries like India or China; later it became Russia, Belarus and some countries in South America. Back then many firms handled the public outcry by decreeing that the outsourced positions were low-level jobs and such a move would help the company provide better services to the consuming public, or it would help the company better compete in a growing global marketplace. In addition, many firms stated that outsourcing would also help free up American workers to do more important work. While companies saved on wages, benefits and some capital expenditures, many firms suffered from increased customer service complaints and the unforeseen cost of reworking outsourced coding products due to differing logical thinking.

Since those early days to now, a vast amount of data out has been compiled that has proven that outsourcing did not improve customer service as originally touted, nor did outsourcing help a company gain efficiencies in order to better compete. Outsourcing did not even help create new ways to re-utilize American workers. Instead, what outsourcing did was displace many American workers for the sake of short-term profits and short-term operational gains. As a veteran and senior IT leader I know first-hand how outsourcing decisions are made and I also know all too well the affects it has on impacted workers. While those choices may have helped me once or twice in my bonus plan, it never felt good, morally speaking. One will never understand the effects of outsourcing until they are on the receiving end of a 30-day notice that their job is going away and then they realize that they are middle aged, they have a home to care for, a mortgage, and two kids in school to worry about. Maybe that explains why I give a lot of money to charity!

It's time that American firms realize that in order to create a better America, they need to care about the employment of Americans for Americans. We need to recognize that we will never compete on a price level; the American value proposition needs to be on quality...something we once were highly regarded for, and something we can again recapture. We also need to recognize that all Americans will not be MBA holders nor will we be a society of complete affluence...that is only capable in fictional writings. The truth of the matter is that a percentage of our society will only be CSR's, moderate level programmers, or accounting clerks at best. That is not a demeaning statement of the person or of the position, it is simply the hard truth. Many in those positions do not have the support or means to re-educate or reinvent themselves at will. Many want to have the American dream but do not go through the pains to get it and keep it...and honestly speaking there is nothing wrong with that -- not everyone can be CIO, CFO or CEO. Many in our society are simply seeking a job they are proud of and one that meets their needs, or their interpretation of the "American dream".

The American corporation can do more and should. As a society, we need to be content about the profits we are yielding for now and focus on rebuilding this great country of ours. We need to stop selling our soul for the sake of the almighty dollar because the truth of the matter is that those benefiting the most from outsourcing are a very few whereas the rest of us hold on to the dream of possibilities...

It would seem to me that if someone's job was replaced by a Machine, there is little that a person can do about it (because the automation shows the process is repeatable and defined well enough to be automated). However, it your job is outsourced, then the person being replaced might have been able (if they were willing) to take a paycut (or possibly reduce other benefits in some way) to keep their job by lower the total cost to a business and make it more comparable to that of the outsourced employee. I am not saying that a lot of folks really WANT to take a pay cut, but in the current times some employees may realize that some job is better than no job. To me that is a possible difference that an employee might see between outsourcing and automation.

My take on all of this - there is a fundamental difference between having your job outsourced/off-shored and having it rendered obsolted by technological means.

What's the difference? Technology has changed the landscape of how the world operates for millenia. Ever since human kind was able to fashion tools to make tasks easier and reduce the amount of manpower required for a task, the kind of tasks available have evolved. Ideas such as the cotton gin, the grain harvester, internal combustion engine, assembly line processes, and transportation improvements have all changed how we do things. Automation is one of these ideas - but off-shoring/outsourcing isn't. Simple as that.

When headcount gets affected by technological advance, that's simply an organization moving forward in the evolution of their business processes. When headcount gets affected by off-shoring/outsourcing, the organization is simply taking a side-step for the sake of saving a few dollars. It will be short-lived because once all of the efficencies are wrung out of the process, the organization still needs to evolve their business process in order to move forward.

With regards to your question as to why groups feel it's imperative to keep U.S. workers employed unless their position can be replaced by automation, it's somewhat obvious - the more workers that we keep employed, the larger the tax base will be; however, if those organizations replace workers with automation, they will be able to evolve their business processes and eventually increase headcount again. By moving a position off-shore, organizations are reducing costs but keeping headcount equal - which reduces the U.S. tax base and increases the tax base (i.e. wealth) of another country (which, in turn, is thought to be un-American).

Paul you've written, "Proponents of offshoring say the practice frees up cash and domestic talent, which can be put to work on projects of greater strategic value." I agree that this is an all too common justification, but it seems odd there is an equally loud and equally frequent complaint by managers that "local talent just doesn't exist, it is difficult to find skilled labor." There was an article on InformationWeek, by Rob Preston I believe, just recently on this subject. Sounds like so much justification, so, which is it? More likely than any other explanation is your follow on sentence implying that executive remuneration is largely based on the economic cost to produce ratio and cost containment efforts especially since 2008. If the executives cannot show reduced cost of operation or increased production, they generally will not remain long in the chair. It kind of begs the question, in light of MBAs which concentrate on profit margin and production matrices, if there are any corporations or executives which consider a balanced view of production and social responsibility (not measured exclusively by green standards but as importantly by those toward the work force (retirement, healthcare, education) without whose active participation will impact the golden index of profit margin).

Does it matter if the job is lost to offshoring or automation? Perhaps, only if the workforce is not offered the opportunity to participate in the decision of offshoring or reducing costs. Faced with a decision to loose a job or take a slightly reduced salary, it may lead to a surprise for the employer. I would also not discount a possibility that it could also result in suggestions for creative/productive alternatives.

"Automation technology will not result in broad-based, permanent elimination of jobs."

I don't know how automation will not eventually result in structural unemployment. We can basically automate, or to a large extent automate, the ability to produce basic and even non-basic products/services today. Sure, this results in a richer world economy in which people are no longer spending all their time producing food but iPads, facebook and other non-essentials. To some extent, factory workers and farmers have been replaced by app creators and interior designers, but it is only a matter of time before our ability to automate outstrips our ability to invent new wants/needs... or we destroy the planet by tapping every resource to produce more and more things to consume. When technology like Watson not only automates routine call-center thinking but complex thinking, there is going to be higher unemployment. This, of course, is not necessarily a bad thing. What we call unemployment today could be called leisure time and people would not need to work as much as before (the whole idea of increasing productivity). The problem today is that the benefits of automation go to a very small minority. If the benefits of automation were more widespread, in form of guaranteed income, huge financial support for arts/sciences research or however you want to dole it out, people would celebrate automation.

"Outsourcing Or Automation will result in jobs toward providing services that are anchored locally."

That is the argument, but we can't all cut each others' hair all day. There is a limit to how many services people can consume which require a human and even local services can be automated. If you think about advances in technology, there are very few things which theoretically need to be performed by a human. Even cutting each others hair, teaching and medicine can be automated.